Tuesday, May 10, 2011

A US Interventionist Visits China

Byron Wien, Vice Chairman of Blackstone Advisory Partners, is just back from a visit to India and China and in a report on his trip demonstrates an all too typical American lack of understanding as to what raises the standard of living of a country. I will focus for the most part on his comments about China, though his confusion does extend to some of his views about India.

Wein gets off to an incredible start by hailing China's authoritarian style:
Because it [China] has an authoritarian government, the country can deal with some of the problems it shares with India quickly and decisively. Older, run-down housing and office structures have been torn down, and roads have been rerouted and rebuilt. There are no visible homeless. The emphasis on infrastructure and export-oriented industries has resulted in China representing close to 20% of United States imports while India only accounts for less than 2%.
Uh, that emphasis on export-oriented industries has been led by China's authoritarian central bank propping up the US dollar against the Chinese yuan, which has lead to serious price inflation problems in China that will likely crash the Chinese stock market and economy in the not too distant future.

Further, the authoritarian "emphasis on infrastructure" has led to rumors of "ghost cities".

Wein hints about the ghost cities, which he did not personally see:
After I returned someone sent me a video of several modern Chinese cities with empty apartment complexes and retail stores, so perhaps I didn’t get the whole story.
He also is aware of the [price] inflation:
Inflation was a more serious near-term problem but restrictive monetary and bank lending policies seem to have brought that under control, with consumer prices rising about 5%, half the rate at the peak. Wage inflation is a worry at most of the companies I visited, with year-over-year increases of 10%–15%.
If he thinks the inflation is now under control at the just the beginning of a slowing of money printing, Wein is in for a big surprise. The signal that the money tightening is having an impact will be the crash of the stock market and the current economic structure in China. Austrian Business Cycle Theory teaches that newly printed money enters at a specific point in the economy (chiefly the capital sector) and the economy is distorted in favor of that sector(s). When the printing stops (or slows significantly) those previously central bank supported sectors crash.
That Wein can't put the pieces together with regard to the ghost cities, the price inflation, the money printing to distort the value of the yuan versus the dollar is a sad take on economic understanding of Americans who are even in the financial industry. Wein even hails the "authoritarian style" of the Chinese government, which is creating all thes problems and about to crash the Chinese economy.

Reading Wein andhis view of how wonderful everything is in China, reminds one of the socialist apologist at NYT who raved about the Soviet system, just before it collapsed. To be sure the Chinese economy has advanced remarkably since the elimination of the  repression under Mao's Cultural Revolution, but the authoritarian style has been toned down and muted, but far from completely removed. It is that authoritarian style, which results in severe money printing and questionable central planning, that is setting up the Chinese economy for a very loud crash. That Wein hails this authoritarian style and fails to see the crash that is coming is absolutely stunning. 

(Thanks to Candice Blackburn for bringing Wein's report to my attention)


  1. It's true that there are few if any visible homeless people in China, at least in the major cities. I was advised that the homeless are periodically rounded up and shipped out of the cities. Visitors like Wien and me accordingly don't see them.

  2. Wein's adoration of authoritarianism is spew-worthy.

  3. Thanks for the mention of "Ghost Cities." It was not hard to google the phrase and find links from reliable sources.

    The consequences of such waste are unavoidable.

  4. Thanks Robert! Glad you could share the ick-factor with the reading public